Daniel Gros is Director of the Brussels-based Center for European Policy Studies. He has worked for the International Monetary Fund, and served as an economic adviser to the European Commission, the European Parliament, and the French prime minister and finance minister. He is the editor of Economie Internationale and International Finance.

No! Austerity has not worked as adverised. It's been a huge failure and and depressed many economies to slower growth and slower future revenues. These revenues compond over the years and makes the picture even worse. It's been 5 years since the financial meltdown and we still have so called experts like Mr Gros here who does not seem to understand failer when he see it.

Solvency is a sovereign problem related to the role of the central bank and not related to the debt ration (see Japan). Moreover, by focusing on variables such as debt and deficit is misleading because in such way we lose focus on growth - which is what tells us if a debt is sustainable or not. Bottom line is, austerity provoked more and unnecessary recession, and that's something you cannot condone even on just purely economics terms.
Furthermore, just the last line on social costs, quite typical of economists concerned with numbers and not with social reality - markets work in the real world and it is about time to remember it. Austerity risks destroying social textures + democracy, so it's kinda doubtful that a reduction in imports is worth the price. Gros seems to forget that the model he's praising was working only at the time of Gold Standard, i.e. in non democratic societies.

From the moment that the curriculum of the author of this article mentions that he has worked in the IMF the reader already knows to expect ... falsehoods!
Austerity is deepening poverty of the majority and consolidate the wealth of the minority.
I am an economist and I do not swallow the lies, but it not an economist I would also account because I have eyes in my head to see the reality.
Austerity has definitely failed in Europe.

The author says:
"...almost all economic models imply that a cut in expenditures today should lead to higher GDP in the long run, because it allows for lower taxes (and thus reduces economic distortions)."

This is meaningful for economies that can (and societies that want to) fit the pattern of pursuing technological development for increased productivity and not for those that do not have the culture of entrepreneurship (like Greece and south Italy). The problem of high debt in these places is a problem of not investing in renewable energy, natural beauty, and quality touristic and living infrastructure in these places. The uniformity that economists try to impose will be socially rejected.

Second, the author makes a false claim, based on data that are not on the graph he provides: the PIIGS average is below 200%, not all countries are presented, and he admits more than 250% ratio is problematic.

While I'm a in agreement that austerity can fix in the long run the account balance however many who believed that austerity will lead to growth have found their argument falls flat in the face of evidence. When a country cuts its expenditure, at the same time, the citizens starts cutting expenses the GDP goes down causing debt to rise rapidly especially when you have the entire zone doing at the same time. In the face of being wrong, the austerians started pinning blame elsewhere because they have the ears of the uninformed politicians, they pushed to keep the policy in place.
When the population of the country does not like its policy, it forces change in the government to encourage growth while the damage created by the said policy work its way through.

I do agree with those that blame the arguments of this article. But I would like to point out one of the most ridiculous one, from my point of view.

"With austerity, imports have crashed everywhere in the periphery, while exports – helped by falling labor costs – are increasing (except in Greece). As a result, these countries’ current accounts are now moving into surplus, and their external solvency is improving rapidly."

Imports have crashed in the periphery because recession, now depression, and high unemployment... Should 6 million unemployed in Spain and so in other periphery countries wait to 2018 to get imbalances fixed? or Must the Eurozone make a plan to fix them? Because the bad design of the euro is the real cause of that imbalances.

In fact, It would be better for the eurozone if Germany raises wages and invest heavy with all that euros that spanish, greeks, irish, portuguese and italian are giving them trying to fly from the euro breakup threat.

"Austerity" is such a politically loaded concept nowadays it becomes difficult to have an unbiased discussion over it!

While I do agree with Daniel Gros basic view, I also believe some of the comments strike a right chord. The austerity imposed in some countries was exacerbated by the weaknesses of the EU construction; however, austerity is a consequence of internal imbalances and even outside the euro area southern countries would have been forced to adopt austerity measures (devaluation of the currency is also an austerity measure as it reduces the purchasing power).

It is also true that the burden of austerity measures was imposed without much discrimination and, in Ireland and all other places, banks' creditors and owners interests were protected at a cost for everybody else; but sorting out debt is always a very long and messy process in which innocent victims end up paying a price.

"It is unavoidable when a country has lived beyond its means". That this is morality argument is still being used is baffling.

At this point it should be beyond obvious that the Euro crisis was created because of the euro and was magnified by the way it was handled by the Troika. The PIIGS lost access to the” foreign creditors’ confidence” because the Eurozone made it abundantly clear, again and again, that they would only do the smallest amount necessary to help their members states.

This is not surprising, given the way the Eurozone is set up with politicians only accountable to their own country’s voters. However, that this fact is ignored in this article is surprising to say the least.

The external aspect is crucial. If public debt is owed to domestic investors, it can be serviced with the taxes levied on GDP. But debt owed to foreigners can be serviced only with goods and services sold abroad – that is, exports.
Wrong! If Italy owes money to Germany, it can tax its citizens Euros to pay a Euro debt. Remember Italy's current account is also with other Euro members. What you say is only true if all other countries have different currencies. Get your economics right!

Austerity is just a term coined by coward politicans and US keynesianists pretending to be clueless for a forced end to unsustained overspending against the agreed principles of the monetary union. But of course nations are free to borrow from bond markets at death tax rates and go for "growth" policies. Good luck! The alternative to "austerity" is letting other nations subsidize their overspending which is already happening under the so called "austerity" regime and the inflationatory madness in these nations.

The second paragraph is purposefully misleading and dishonest. It's pretty clear, that the anomalous situation in the eurozone with *negative real interest rates* for German bonds and the capital flows from the periphery to Germany, is what allowed the deficit reduction.

The paragraph should be "So it is possible to reduce deficits and keep the debt/GDP ratio in check when you're the only country its currency would revalue in the event of the breakup – provided that the economy recycles its debt at negative cost and also expands its deposit base without borrowing more"

My opinion is that austerity is applied only as a means to reduce government spending.
However we are also seeing more borrowing and tax increases for instance in countries of the euro periphery. Tax increases across the board are not part of Austerity and cause lots of harm as it leads to a doubling of the negative spending policies on a countries economy.
Countries such as Ireland, Portugal and Greece are pretty much being told what to do and that is to "pony up" the cash any way that can be done. Regardless of the social costs, their governments have "Ponied up" rather than stand up to the Euro Core and point out thats the design of the Euro is deeply flawed.
Jopseph Stiglitz writes clraely about the benfits of low Tax rate regimes to the highest 1% of the wealthy, and how its disastrous for the other 99%. Unfortunately and we have a system going that way in Europe.
It is incorrect to say countries like Ireland, Spain and Portugal were living beyond their means before the Euro entry. These countries had sustainable debt levels. It was the banking crisis that led in Ireland case to its entry under the IMF (Im still at a loss to logically understand why unsecurred bond holders got bailed out and why the insurance system against default, the Credit Default Swaps were never triggered) So back to the main point again, Austerity in the way its currently being implemented is not Austerity in the correct sense of what Austerity was designed as nor as it was to be applied. Simply if you take away a countries ability to change its own interest rates and also to devalue its own currency to offsets debts incurred. The only way left to raise money to either pay off debts or control its deficit is for governments to reduce their social, health spending etc and increase taxes on food etc (VAT) and on wages in order to pay off debts incurrent. Eurozone countries are in the bind of Austerity not because of living beyond their means but more of a pooly designed Euro system...... But without a doubt the system of Austerity as its being used it not fit for purpose, Even the IMF has stated so when they say they got it wrong........

This is simply right-wing propaganda. The idea that cutting taxes causes prosperity has be thoroughly debunked. Taxes increased under President Clinton, and the economy boomed. And Clinton started to pay-down the Federal debt. Then, under President Bush, taxes decreased, especially for the wealthy, and the economy tanked.

Now, let's address this "morality tale" that is the basis for your post. When Germany was in trouble, they borrowed from Greece (actually, they stole from Greece, and never paid them back). Now that the tables are turned, Germany is happy to grind Greece under their heel.

And why? Because German banks are leveraged up to the moon, and have used that money to buy Greek bonds. This is a house-of-cards that is ready to collapse at any moment. So, any hint of a "hair cut" that would be the normal consequence of a bad investment in a REAL market, would cause that collapse. Germany would have to bail out their banks. But, the amount owed by those banks is LARGER than the entire German GDP, and certainly beyond the ability of the Bundesbank to repair.

So, all of your talk of avoiding market distortions is just bullshit. Germany desparately wants to prevent the market from functioning, because, otherwise, the German banks are toast, and so is the entire German economy.

Greece should demand repayment of the money that Germany stole, with interest, and threaten to leave the Euro (and default) if they don't. That would certainly stir things up, and with considerable justice!

Debts grow more when we go deeper into debt to cover them, the debts grow more when we do not use our remaining resources to address future maturities. If a state raises taxes to their employers to meet their financial commitments will likely cause many of them to close their businesses and cut jobs, hence, the power bilge taxes are more. In the case of Spain and the UK, observed that austerity could be applied in military spending at the time. Spain in its military adventure in Afghanistan was spent 3,500 million euros and what was the benefit of the people? The problem austerity theme is that governments apply the medicine to its citizens but not to themselves: they reduce costs in health, education and taxes rise so that destroy their own economies. But spare resources for the wars in distant lands. Austerity is not bad, bad is the way we have implemented it.

- Austerity is a failure when you have countries with unemployment rates exceeding 20%, GDP that continues to contract and a debt to GDP that increases;
- Your analysis peddles, in an indirect way, a variant of the myth of expansionary austerity and a morality tale of "living beyond your means". Your claim that the "cut in expenditures today should lead to higher GDP in the long run" is nonsensical without evidence in the data and existing only in calibrated laboratory models. Perhaps one day you will get the memo in Brussels;
- External deficits have collapsed together with aggregate demand, did you expect otherwise? Your analysis ignores the creditors side of the imbalance, or did the lending come up from thin air?
- Market confidence was "lost" when traders realised that the dream of "convergence" and Europeanness sold by politicians, the EC and their consultants was hot air and in its first crisis the Member States retreated to their homesteads and it was everyone for themselves: no common monetary policy and lender of last resort to restore a crisis which started in the private sector (ex Greece), no transfer system, solidarity replaced by austerity, cultural clichés and a clown in Frankfurt quoting Faust as monetary guidance;

When I read articles like this my blood boils: "how-austerity-has-helped-the-eurozone-periphery" says in the browser. Do not wait for the gratitude of my compatriots to come any time soon.

Do you really belive what you're writting? It's incredible the level of ignorance and fantasy/or deception this article contains. It's true that the PIGS have no other choice but to embrase austerity given that they had been cut off from financial markets; however, it's indefensible the position of Germany not to embark in a fiscal stimulus that could help the periphery to rebalance. The same goes for the ultraconservative monetary policy followed by the ECB that has left the countries in the periphery bound against the hard line of zero wage growth given the existence of nominal rigidities. Austerity in the Erozone as a whole has proveen to be a big mistake, debt/gdp ratios have not stabilized in any periphery country, there's mass unemployment, GDP has collapsed and lags FAR behind the recovery of the US. The only thing that austerity has proven is that european democracies are far more solid that one could expect. I would had expected an extremist government, such as the one in the rise in Hungary, to have took control and left the Eurozone by now! But given the ridigity of mind of people in the european commission it seems that we will get that eventually and then we will see a disorderly euro breakup. Thanks for not being able to pull your head out of your ass!

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